Wednesday, November 11, 2009

I've been thinking about the discontent between entrepreneurs and VCs. The story goes like this:

Entrepreneur (E), VC (V)

E: The venture capital model is dead. I'm working on a hot company that's going to change the world. VCs don't understand my business.V: What's the correlation between dead VC model and your inability to raise VC money? Bring on the VC-fundable idea and team, and we'll write a check.E: We have a target market with no competition and great idea.V: No competition? If it's an attractive market, there's gotta be someone else competing against you in that market. No product? Too early for us.E: The reason that we are the only one is that it's a $100M market opportunity.V: $100M market? Too small. Can't justify the investment return in the end.E: We have a business model and product that can dominate this market.V: Interesting. Maybe I'm interested.E: Good. We're looking for VCs with operating experience. We're not going after just money. We want value-adds.V: I have been investing for 20 years right after MBA. I invested in company A, B, and C all of which exited successfully. My partners have operational experience in your sectors.

and it goes on and on....obviously, overly simplified but the gist should be there.

Who's right and/or wrong? Nobody. But entrepreneurs and VCs make a big fuss about the stuff above.

Can we just get along and stop blaming each other?

There are ideas that are VC-fundable and bootstrapping.

There are successful VCs with operating experience or just management experience.

There are big market opportunities and small ones.

Entrepreneurs' job is to create and capture value in any market opportunities.

VCs are in the business of maximizing returns to their investors (a.k.a. LPs). This may be a controversial statement, but I'm going to say it. Entrepreneurs are NOT VCs' customers. LPs are.

Many of us in startups talk about flat organization, no hierarchy, no politics quite often. We tend to believe that bureaucratic organizational structure in big companies is the enemy of all, and that startups are nimble and move faster to adapt to changes to customer demand and market conditions.

I recently engaged in a discussion with some friends and talked about the office politics. There were entrereneurs, consultants, bankers, and even VCs. Not surprisingly, we agreed that there's politics when there are more than 3 people in the same room.

In the startup environment, politics is not necessarily a bad thing. When 3 people always agree, they are not probing the problem enough. On the other hand, the whole resolving internally conflicting interrelationships is difficult. As with many other things, there are pros and cons. What's your story?